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Invest in Property for a Second Income

By: Chris Nickson - Updated: 24 Jun 2013 | comments*Discuss
 
Extra Income Second Income Property

The first thing to remember about property investment is that it’s a risky business. It’s perfectly possible to make a good second income, but equally you can lose you entire investment. It’s a gamble – the best that can be done is to make it an educated gamble.

The other point to bear in mind is that investment is the vital word. It requires a commitment of money, which will largely come from savings, so it’s important to be fully aware of that – it’s a depletion of capital, which can only be regained (hopefully with more money to join it) over a long period.

In most cases, property development for ordinary people means buying property to let, which will be flats or houses. That property can only make money as long as there’s a tenant, and the rent charged is higher than your outlay. However, you can’t depend on always having a tenant. Above that, it requires a good tenant. A bad one can wreak havoc on a property, leaving the owner to spend money to bring it back to a state where it can be rented again.

The Advantages Of Property Development

It’s possible to create a good second income from buy to let properties. Not only does it generate ongoing income (as long as the properties are rented), but it also means the acquisition of a portfolio of properties, which could always be sold at a later date. Obviously, the more the amount paid on the mortgages, the greater the eventual profit.

As long as there are tenants, it’s possible to calculate the income each month. Be warned, however, that there will also be unexpected expenses for repair, as well as general maintenance expenses. If the property is a flat in a block of flats, there will almost certainly be a monthly fee to a management, company, although that can be included in the rent (at the same time, the rent must be in line with the local market to keep tenants in the place).

Of course, there are other types of property development, but most require a much greater investment, and the only people likely to be involved are those for whom it’s a full-time job, or part of a financial portfolio – it’s certainly much more than a second income.

The only other type of property development that’s truly feasible for individuals is buying run-down houses and working on them before selling them at a profit on or keeping them as properties to let. Unless you have very strong DIY skills and a thorough knowledge of building regulations, though, this can become an expensive proposition, involving contractors, who can be notoriously unreliable.

The Disadvantages Of Property Development

The disadvantages of owning a buy to let property can outweigh the advantages. From the outset, there are hurdles that have to be jumped. The first is simply getting a mortgage, as lenders have tightened their regulations. You should also declare that you’re buying the property to let it – some mortgages require the lender’s permission for it to be put to that use. Without that permission, it could end up in repossession.

The landlord has to have insurance on the property, but it needs to be the right kind of insurance, which is different from regular household insurance. Additionally, some policies exclude letting to certain types of tenants.

The landlord is responsible for the upkeep of much of the property, not only the exterior and roof, but also gas, heating, electricity and water, and the landlord has to be certain that all gas appliances and inspected and certified annually. If the landlord puts furniture in the property it must be fire resistant and all electrical appliances have to be safe.

Finally, there are the tenants themselves. On a Short Term Assured Tenancy, the landlord needs to complete an AT5 Notice of a Short Assured Tenancy then pass it to the tenant as well as the Short Assured Tenancy Agreement for him to sign and date.

Make sure there’s a rent review clause in the agreement, which stops the tenant challenging any rent increase you might want to impose. Security deposits have to be put into a separate account, too, and there are regulations covering the way it can be reclaimed by the tenant.

One of the greatest problems with buy to let is the fact that you might need to evict a tenant at some point. That requires a court order, and there are strict laws regarding the harassment of a tenant. If you’re going to buy property to let, it’s advisable to have a solicitor.

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